What? A lmost four decades.
Four, 42 years.
Right. I think we'll just start with a presentation, and then if we have time at the end for some Q&A, then we'll go with that.
Fantastic. Well, thank you for having me.
Of course.
I'd like to get in and talk a little bit about the company progression. We've got our forward-looking statements that we always go through, talk about our items in GAAP financial measures. Some investment highlights for the company. We have a strong, diversified portfolio. We have four markets focused that we really focus on with the growth. We'll get into each of those markets a little bit. We have a leading market position in the markets that we do serve. We have over 75 years of the company producing in the majority of these markets. We have very strong relationships, and we have multi-year contracts in many of the businesses that we have. The business has long-term potential growth. Most of our markets, we'll get into some of the secular growth that's occurring.
We've made significant strategic investments in each of these, some that are currently ongoing in our re-entrance into packaging. We'll get into that for some of that. We have a focus, we'll get into the capital priorities for the company, but plenty of opportunities for organic growth that we have been and continue to invest in. We have a good financial strength. We're a conservative company. We have a very strong liquidity, and we maintain our businesses with highly variable, flexible workforces. F inally, we believe in the aluminum products space, that we're very well-positioned from a sustainability perspective, and we've seen plenty of opportunity how that's worked together in most of the markets as we grow.
Long term, we think the business is positioned for significant growth, roughly conversion revenue of around $2 billion, EBITDA margins in the mid- to high-20% of which we've historically had in the past. A little bit about the business. We're North America-centric, 14 manufacturing locations. We make products and flat roll products, extrusions and drawn products, and we'll get into that. As I said, we've been producing these products for over 75 years. The competitive strategy has been consistent, that we have dealt with. We use a focus for our strategic investments and applications with high barriers of entry. That's a focus. Our facilities are focused. No more than one or two markets do we participate in each manufacturing facility.
We focus on differentiation of the products that we provide, the service that we give, and the quality and the attributes of the products to our customers. W e create value through increasing operating leverage and manufacturing efficiencies in the operations. Our end markets, this is a little reflection of where we focus the business. The chart on the left is roughly, we deliver flat roll products on a global basis. That's roughly a £68 billion market, but you'll see that we're very focused in the markets that we participate. Less than 15% of our markets go into two different categories. One is the heat treat non-auto, and the other is in the packaging side of our business.
Consequently, on the long product side of our business, we only participate mainly in North America, and we participate in less than 20% of the available markets. That's in our general engineering, and our auto and aerospace. V ery focused in the markets, where all of our products end up. Talked about the diversified end markets. This is the last 12 months. We really measure our business by conversion revenue. We basically take the cost of metal, remove that, and that's the remaining of which we have the potential for profits. You can see that aero and packaging are the largest segments of our business. General engineering is next at roughly 23%-25% historically, and then automotive constitutes roughly a 7%-8% on an ongoing basis. I'll talk a little bit about aerospace.
This is a market, again 75-year history of supporting this aerospace supply chain. W e're seeing and anticipating and participating in a strong commercial resurgence that took a fairly large dip. We were basically down 40% in that revenue, and the conversion revenue during the pandemic. We're seeing a strong resurgence in that business, so commercial constitutes a large part. However, the company also participates heavily in defense, so we're actively a major participant on the F-35, the legacy programs. There were over 400 F-16s ordered this year. That's a legacy platform. We're heavily on those, so we're enjoying the continued persistence and prevalence of those businesses. We're also into the business jet and space side of the business, which we're seeing good growth in every complement there.
Right.
R eally good. The chart on the left shows where we were. Our high point for aerospace from a conversion revenue perspective and shipments took place in 2019. You see the dip that we took place during the pandemic, but you can also see how we're surging back on not just shipments, but on conversion revenue. This business is generally supported by long-term contracts that we have in place, again in each of those segments. W e're very well-positioned.
We actually went down a little less in that market than most in our space, so very pleased that that's returning. A lot of folks think of us as just a flat roll supplier into that. You can see on the line below, we have a multitude of products from our facilities that go. These are all very tough, demanding, a few participants and so really a great market force. W hat we predict and talk about is a 3%-4% CAGR on the growth rate.
I've got a little bit more on the following slide to talk about this, and how we see especially the commercial market returning. The slide on the top left talks about the backlog that's currently in place with the two major airframers. We've continued to see that eight-year backlog, even during the pandemic, even though production had fallen. With production coming back, we're still seeing those nice backlogs that are moving in place. You look down the bottom, left quadrant, that's the air passenger traffic. You can see that huge dip that took place during the pandemic. We're seeing that resurgence come back very nicely. Obviously, it's been a lot of domestic travel, but we're also starting to see that resurgence in international travel. Charts on the right talk about aircraft production rate greater than 50 seaters.
That's generally your single aisles and so forth going forward. You can see how we were on a nice growth rate, but out in 2030, we're seeing very strong demand. This is really forecast coming back from our customers to us. T hen we always get back into looking at even the load factor that's taken place. W hat we've seen is the load factor come back on the existing platforms very quickly, back to that 80%-85%. Generally, at that 85%, you're building new planes, you pretty much have that plane at capacity. A ll the indicators are telling us that we have some pretty strong runway ahead of us, and again, back to that 3%-4% CAGR we're experiencing in the last decade prior to the pandemic. V ery, very positive on aero for us. Move forward to packaging.
Packaging, we deal in packaging for beverage and food cans. There's been a tremendous shift in the industry towards aluminum as the material of choice, driven really by the sustainability of that. Aluminum is infinitely recyclable, and we're seeing that being a large demand driver for all of our customers customers. Our customers are the can makers, and generally we'll participate with the fillers, who also work with the can makers to fulfill their products. I t's a very recyclable material. A lot of movement, focus in the industry on getting to secondary recyclable. We look for closed-loop content with our end customers to really take advantage of that recyclable type opportunity. We have a major capital investment underway.
We made a reinvestment in this business about two and a half years ago. We liked what we saw in place as far as the growth potential for the business. We saw a facility that was quite frankly, a great price lead for us and we think long-term, really good, sustainable growth. We're investing in that with a new roll coat and going after the higher margin coated-type applications within that business, and it's really underpinned by again, the changes. I think over 75% of the new products that have been introduced are doing so with an aluminum can or aluminum packaging in place.
W e're seeing currently some little destocking, renormalizing, resetting of the supply base, but long-term outlook, that five to seven CAGR doesn't feel that good right now because we've been under destocking mode this year. W e think good long term, anywhere from 3%-5%, which is a very strong secular growth market for us. W e're well-positioned with this. We do nothing but packaging in this facility. It's been operating for 50 years, strong customer base, qualified workforce, really pleased with the position we have and the long-term potential growth for Kaiser. Moving on to general engineering. Kaiser Aluminum also, we have roughly 75+ year customer relationships that we have with this business. We produce the broadest product offering in the marketplace. We've been doing this for many years.
You can see the chart on the left, as we entered into 2018, 2019, actually we were maxed out on our growth because aerospace was growing at the same time, and so we maxed out. We felt that during the pandemic, there would be some challenges there. We actually were surprised. We saw a big resurgence in that business for us, in terms of shipment and conversion revenue opportunity for us. We saw a lot of reshoring begin to take place in the markets. That's mainly coming back from Asia in a lot of that, and so we were well-positioned to take example of that. I have a reference on the semiconductor business.
I'll get to that in another slide, but we're seeing that business associated really driving a lot of long-term secular growth for us in the coming years. We've got about a 2% CAGR. Doesn't sound like a lot as you look at the other markets, but a 1%-2% CAGR has been consistent in this market. If you go to the following slide, this really follows industrial production in North America. North America is where we focus on these products, and I call out semiconductor builds and there's a lot of activity that's been taking place. Our product goes into the semiconductor companies that manufacture the tool sets that produce the chips themselves. T hey'll take our plate products, they machine those down and then they get utilized to build the chips.
T hey look for high consistency of properties in the material and the machinability characteristics. We've got one of the top market positions there. You can see on the chart on the right, what's happened with semiconductor over the years. That's really in confluence with aerospace, because we produce those products at the same spot. A good challenge for us as an industry and particularly as a company, is managing the growth of products like semiconductor along with aerospace and we think that's going to provide really good opportunity as we go forward. We're in a little bit of a destock in that product at the time.
Of course, a lot of the demand we heard earlier, but with the CHIPS and Science Act and with a lot of growth that's going to be taking position here domestically over the next few years, we're well-positioned to look at that as a growth market for ourselves. W e think that's going to continue to just grow in that category, well-positioned, and North America is going to be a great spot. A lot of the product that we have there currently goes through Asia. We see a lot of that coming back. Asia will remain a port area, but we see that market domestically growing very well. Moving on to automotive, about 8% of our conversion revenue goes into automotive. A lot of focus on the build rate.
SAAR has been at highs at times of 18 million units in North America. It's not been there. It's been 13 or 14 over the last several years. However, our product has been very impactful as far as lightweighting for ICE vehicles. We have a lot of positions. You see some of the product offerings on the bottom, that anti-lock brake systems, we have a significant share of that market. Drive shaft columns that go into the ICE trucks. Of course, 80% of the sales are going out as trucks and SUVs, so those products are applicable there. Y ou see a number of other structural, and bumper-type applications of where lightweighting has been impactful for the ICE vehicles. As we transition over to EVs, we actually see more opportunities for the extruded products.
That's the side we're in on this. We see a 5% CAGR on this business going forward, even if EVs transition a little longer, as you know, it's been touted a little bit about how fast we can get there. W e actually see a lot of movement that's taking place, and the ICE vehicles are still going to need a lot of lightweighting that takes place. F airly good position there, but we like the space that we're in and the opportunities, no matter where the transitioning heads. We're really focused on the execution on profitable growth in this company. 2019 was a key year on conversion revenue, top chart, and EBITDA on the bottom chart. Really had some challenges with supply chain issues and so forth during the pandemic. Key markets down 40% or 50%.
Some real challenges, but you'll see in 2021, with the advent, the light blue top bar on the top, that's the conversion revenue with the packaging business. A s we continue to go forward and progress there, that provides a lot of opportunity for our growth. at the bottom, we really went through supply chain issues, some challenges, as we develop and bring our margins back up, back to the historic levels in the mid to the high 20s. W e're really focused with those new investments that we have, and with some of those key strong markets returning. W e're well underway on the recovery back to that. Third quarter results for the company. Second or third quarter came in actually a little better than what expected.
We were seeing some destocking beginning to occur in the general engineering side of our business. Actually, it's been underway for about a year. Part of those products are returning back. We saw the plate products are still a little slow to return, but we're moving that capacity over to aerospace and really advancing the quick recovery in that market. We started to experience, in the third quarter, destocking on the food side of our business. T he beverage side of our business had been in a destock mode really, as the can makers and the fillers get into an area where they're resetting, renormalizing after the pandemic.
W e have experienced a period of time there. I n the third quarter, the food side of the business, of which we're a major player in, we saw what we believe is short-term destocking taking place there. T hat took a little bit off of the third quarter, and really gave us an outlook for the fourth quarter to be a little bit more conservative than what we had. T hen on the EBITDA on the right, we've really worked over the last two years on stabilizing the supply chain issues that we've encountered. This is around labor, this is around material, this is around inflationary costs that have gone through, really not just absorbing those, but moving those through the supply chain and on to the customers. A lot of cost reduction focus have taken place.
The efficiencies in our operations have really been impacted over the last couple of years, with all those supply chain and labor issues that we're going through. W e believe we're beyond a number of those now. We're back to a stabilization and back to some new normals, so we feel that we're through the worst of those a nd on the outside. A little bit of how we look at the capital allocation priorities in the company.
Sure.
This has been very consistent for the company over a number of the years. These are listed in priority. We always go with the organic investments when those are available. You can see the chart on the right, out of almost $3 billion over the last several years, about 40% of our spending has gone into organic investment in the existing platforms that we have. Inorganic growth had been at a slower pace until about two years ago. We made the largest acquisition, which was the packaging business, back into the business, so large acquisition there. It was about a $670 million investment.
T hose are the first two priorities of where to spend our available capital dollars. If those have basically been met, we move down to the regular dividends. The company has had consistent dividends for several years. I have a slide on that. T hen, when all of that has basically met expectations, we do have a history of share repurchases, deploying that cash back to our shareholders. Y ou see a very balanced, disciplined capital allocation that the company's been consistent with for a number of years. Looking at the organic investment, over $1 billion have gone back into the investments into the existing businesses. That's roughly a 2x depreciation that we've done.
W e've invested in two areas, capacity and capabilities, roughly even type of spread, and then quality, efficiency, and sustaining CapEx. The company spends about $50 million-$60 million a year on sustaining CapEx for its facilities. That's been fairly consistent. We have two rolling mills. Those are very cash-hungry type facilities, but we make sure we keep our businesses in good position. You'll see at the chart on the bottom right, over the last two years, we've had some pretty significant spending, especially as it relates to the history of the company. That's around a good bit of the aerospace growth, and that also entails the packaging investment, the roll coat lines that we have going in there to really optimize that business and position it for the future. Okay?
On the inorganic investment, we've made smaller investments over the years. These are more white space investments. We tend to go with businesses we understand, that diversify our existing product offerings. B usinesses that we feel are culturally compatible with the company, and have done so until 2021. 2021, we saw a large significant opportunity to re-enter into the packaging business, and we were being pulled in by the can makers. We looked at the long-term drivers there and felt that it was a great opportunity for us. There was a great culture, great business, existing 50 years in the business. They have a strong customer base, strong management team, strong workforce, and we re-entered back into the packaging industry. Okay?
The value returned to our shareholders, the chart on the left shows the sustainable dividend that we've incurred and presented over the years. We think this is a differentiator in our space. Our businesses have been strong. We have a lot of confidence in what the long-term outlook has been. You could see that during the Great Depression era, we've sort of flatlined that out, made sure it matched up with our conservative liquidity position. Y ou can see that we've maintained even through the pandemic, and raised those dividends at a fairly aggressive pace. Indeed, during that, a lot of that same period when those opportunities weren't available to us for organic growth, we delivered back almost $500 million back to our shareholders. Okay?
T hen I'll hit on a summary here. If we look at our secular markets on the left, and more than a 1%-2% in our business, those are good growth opportunities. You look at the aerospace, packaging, general engineering, and automotive, we've been in most of these businesses for well over several decades. Even on the packaging side, prior, we exited in the 1990s, but we reentered lately. W e have a strong history in these markets. We're seeing strong pull from our customers in all of these markets. If you go to the far right, you'll see the planned investments that we've had for our business and are currently underway.
That's all engaged around all of our business, with a specific focus around packaging and with aerospace, our two largest, where we see significant opportunities. W e believe the platform underneath these investment strategy and with the markets and market position that we have, we believe that this portfolio of businesses are going to be able to deliver roughly conversion revenue approaching $2 billion with high margins, back to what we've historically been able to produce with this business. Okay? W ith that, I'll end the presentation and open anything up for questions.
Yeah. T hanks, Keith. That was definitely a great overview of the business, and I think covering aerospace and defense, I think we should start there. It makes up 35% of your business. Just curious, any general trends that you're seeing? We know commercial air travel, especially on the narrow-body side, that's back to 2019 levels. Wide body's got a bit more to go, not in the U.S. or Europe, but maybe Asia or so. Can you just talk about, I guess, just your platform-agnostic approach that you take with the airframes themselves, but also commercial and defense, some large programs you want to call out, potentially the F-35, how that's going?
Right.
Y eah.
Yeah, so as you mentioned, we're agnostic on platform. A lot of folks are concerned about, well, if the single aisles or double aisles, whether or not that really challenges the balance of our business. Well, if you see how we sell our product, we'll sell 1-inch, 4-inch, 5-inch plate that goes into it. Well, that gets used in every platform that Boeing, Airbus, or others basically bring. W e don't have any issue there. They're able to move our products around and use those.
They like the KaiserSelect attributes that we bring, so we're able to provide them consistent properties, good machining characteristics. W e see a resurgence, as you mentioned. Obviously, we dealt with during the pandemic and then with some of the challenges the industry's had with certain platforms. We believe a lot of that's in the rear view mirror. I think there's still some supply chain issues.
Right.
We're not totally away from those supply chain. It's not really us, but we can get impacted by engines and so forth. W e believe a lot of that is being worked through the system. We have the luxury in this business of getting about a year to up to two or three years type outlook as to what our customers expect, and we're able to plan our businesses accordingly. We see very positive signs over the next two to three years, of their expectations from us as a supplier. T hat gives us good confidence in the recovery, not only the recovery, but how we intend to go back and invest in the business.
Sure.
We mentioned a lot of activity going on with space, that's taken place. They're using aluminum in that platform almost on at most of the application they use, a nd then we mentioned defense. We haven't talked about that as much, but Kaiser's been on the F-35 program since its inception, since low rate, and those are moving up to the sustainable rates. We'll reach another plateau next year.
Right.
We've been on that program since its inception, and do very well on that. W e've also been on all the legacy, not just fixed wing, but rotary helicopter, s o that's a great market for us.
Yeah.
It's a niche area that customers know us for a long time, Lockheed, others and so forth. T hen finally, biz jets.
Right.
Biz jets really came back faster than the commercial. We saw that. They've historically had much shorter lead times than the large jets.
Right.
We're really buoyed by the fact that the fact we're seeing two to three-year, you know, back orders on the jets themselves. That's a big opportunity. Our products get used there, not only plate, but sheet and coil products, and hard alloy extrusion. R eally great opportunity for growth and good to see the resurgence. We were down 40% in the market, but we've come back very quickly. Matter of fact, out of our last earnings call, we talked about, we're up 70% over this time last year on the recovery in the aerospace. V ery, very bullish on what the outlook looks there.
Great, thanks for that. T hen just going back to business jets, just incredible what we've seen since 2019 or well, the pandemic, what that's done to the market. Do you supply sort of all Gulfstream, and Textron sort of, can we assume?
Absolutely.
A ny demand signals that you've sort of seen from the customer? I mean, if you just look at the earnings calls of General Dynamics and Textron, just sort of book-to-builds above one, healthy backlogs, is that sort of fair? Have you seen any sort of slowdown on that?
No .
Right.
That's exactly the type of metrics we're looking for, that book to build and how they do. Right now, it's a solid two to three-year backlog. Historically, that's been less than that for us in most markets.
Okay, yep
T hat's recovered back nicely, and we're still seeing continued demand. We saw a two to three- year backlog a year ago.
Right.
It continues, s o we like that backlog.
Got it, o kay. T hen I guess, just want to move to your largest acquisition you've made in Warrick, in the packaging space. Can you just talk a little bit more about the consumer trends that underpin sort of your bullish outlook for that acquisition, and why you think it fit into your portfolio long term?
Yeah, it's a great question. We started to look at the packaging business about two to three years prior to making the acquisition that we had. What we didn't like, we didn't like the idea of bringing into our existing facilities because we had multiple roles in some of our plants, multiple types of businesses that we ran, and we didn't like how that worked out. W e're looking at another way to get at that market segment. During the pandemic, we actually saw the opportunity at Warrick, very attractive price in the marketplace. We got this business, it's a large rolling mill for roughly $670 million.
Right.
To put in a new green site rolling mill, and others are doing that now. That's a $2+ billion type of investment. This business came with 50-year history.
Right.
Had been maintained very well, had a very strong workforce, knowledgeable workforce, and had 50 years of history with good, strong customer base. W e liked the price, we liked the market. The sustainability issue was really the change from where we exited in the 1990s, out of a multi-role plant.
Yeah
The sustainability is not just driving, it has driven over the last several years. There does not appear to be any falling off of that. Sustainability is a major demand driver, not just in beverage, but in food, and not just in human food, but in pet foods. S o that, and the recyclability of that builds into the sustainability of that. A ll that fits very, very well into another outlet growth market that we look to. We also like the fact that we have the ability to do what we've done in our other businesses. We can really get in and differentiate our products. There are niche capabilities that this business has. We're focused on the coded side of the business, higher margins than the bare products and we're really well positioned to take advantage of that.
Right, p erfect. I think we're on time, but just just any quick commentary on capital deployment, just in terms of sort of exiting the pandemic, can we assume that inorganic growth will potentially take a step back and the focus will be on execution for now or any commentary on that?
It's absolutely our focus.
Right.
Our focus is, w e've got plenty on our plate right now. We have plenty, our growth markets, we've got a lot of investments are going in to meet that growth. We like that. We've spent a lot of money in the last year or so. There's a timing, there's a pull by our customers, and there was a window to do that. We spent a good bit this year.
Right.
A ctually, we've got a little bit of an overrun on a project, but even with that, we expect to spend less next year than what we've done. We think that we'll just be in a great position as these markets expand.
Sure.
No different, and really focused back on organic investments and delivering money back to shareholders.
Perfect. Thanks, Keith. Thanks, everybody for attending, and thanks for supporting the conference. Appreciate it.
Thank you very much.
Thanks a lot.